Financial Inclusion’s Best in Class

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By The Center for Financial Inclusion at Accion

For the last 10 years, theGlobal Microscope on Financial Inclusion has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial-inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.

The Leaderboard

Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.

With this much consistency in the leaderboard, the more fascinating stories may lie with this year’s “most improved players”:India, Costa Rica, Honduras and Egypt. Each country has made notable progress on financial inclusion, but none more than India. With a national biometric identification system in place, continued progress on access and usage of bank accounts, an improved institutional framework and commitment to digital payments, India—already among the top countries—is increasingly seen as a model for ongoing progress.

Keys to SuccessCommitment and consistency matter. An enabling environment for financial inclusion does not happen overnight. Colombia’s and India’s financial inclusion policy efforts predate even the first Global Microscope. Peru and Philippines signed on to the Maya Declaration, the first global platform for commitment to financial inclusion, back in 2011, with a small group of only 15 other countries. In short, it has taken years of concerted effort and political will for the top countries to earn and keep their spots in the Global Microscope index. Broad-based policy pays off. The Global Microscope measures 12 components of the financial sector, ranging from level of government support to strength of dispute resolution mechanisms. None of the leading countries scored below 50 percent in any of the 12 components, and all but India achieved 100 percent in at least four components. (Colombia achieved perfect scores in a whopping eight components.) The leading countries demonstrate that you have to proceed on multiple fronts simultaneously to make meaningful progress in financial inclusion.

Consumer protection is a winning strategy. Treating consumers right is an essential part of successful financial inclusion, but when it comes to fair treatment, especially mechanisms for airing and resolving customer complaints, most countries are underperforming. By contrast, leading countries prioritize consumer protection, and their scores show it. Colombia and Peru receive perfect scores in the consumer protection-focused components, and the rest of the leading countries rank in the top eight. Prioritizing consumer protection, as the leading countries have done, is a key to expanding financial inclusion.

Remaining Challenges

Enforcement is limited. Rules don’t mean much if you can’t enforce them, and that’s the story for many countries’ financial sectors. The average score for regulatory and supervisory capacity for financial inclusion, which spans credit portfolios, deposit-taking activities, insurance for low-income people and branch/agent models, is only 48 out of 100. Consumer protection is especially weak. Again, consumer protection is an area of particular weakness, constituting some of the lowest average scores in the index. For example, monitoring of consumer protection for insurance for low-income people netted an average score of just 15 out of 100. Most countries are grappling with widespread lack of market transparency and predatory sales and collection practices.

Usage still lags policy. Countries like India and Philippines have successfully enacted policies to increase access to formal banking, but are still exploring how to get people to actually use the accounts they open. Those countries are pursuing tactics like government-to-person (G2P) transfers to build familiarity and instill the habit of using accounts. On the other hand, countries like China that are experiencing the fallout from unregulated peer-to-peer (P2P) lending are now exploring how to protect investors without prohibiting the flow of capital.

As the financial sector expands thanks to digital advances and new product offerings, the policy environment will also need to evolve accordingly. The Global Microscope continues to report what the policy environment for financial inclusion should entail.